LKQ touts overcoming last year’s ‘multiple headwinds,’ says market conditions are improving

Justin Jude, LKQ Corp.’s president, CEO, and director, recently told investors that multiple headwinds tested the company last year; however, despite that, progress was made in simplifying its portfolio, including the divestiture of its self-service segment.

“This past year tested us in meaningful ways, and yet it also showcased the strength, discipline, and resilience of LKQ,” he said during the company’s Q4 2025 and full-year earnings call. “We accomplished a lot in 2025 and are focused on keeping this momentum going in 2026.

“The headwinds of 2025 were real and significant: a continued decline in repairable claims, the impact of tariffs, and persistent softness in the European market.”

Jude also noted that in January of this year, LKQ’s Board of Directors formally initiated a comprehensive performance review.

“Given the strength of our underlying performance, even in the year defined by significant headwinds, it has become increasingly clear that our current stock price does not reflect the true value or long-term potential of our businesses,” he said. “This review will run in parallel with our relentless focus on operational execution.”

Also in 2025, Jude told investors that LKQ gained market share by deepening relationships with MSOs and insurers, maintaining pricing discipline, and leveraging the scale and breadth of its branch and distribution networks to outperform repairable claims.

“With the MSOs, they have more direct contracts with insurance carriers that drives more alternative parts utilization as part of their agreements with the insurance company,” he said. “We do see as MSOs gain share, the APU grows, and so that’s great for us. And the MSOs, as you can imagine, have much, much more volume at a rooftop level than a non-MSO, so we gain efficiencies just by delivering more products to them. When the MSOs grow, it’s been good for us.”

During every quarter of 2025, LKQ’s comparables improved, Jude said.

“Repairable claims were down approximately 10% in Q1 and improved sequentially each quarter,” he said. “In Q4, repairable claims were down in the range of negative 4% to 6%, demonstrating steady recovery from the early year low point.”

LKQ’s Senior Vice President and Chief Financial Officer, Rick Galloway, also said that North America’s top-line performance remained solid despite headwinds from repairable claims and tariffs.

“We believe we continue to gain share,” he said. “That said, pricing remains competitive, and our ability to fully pass through higher costs while maintaining margins continues to be constrained.”

In 2025, LKQ delivered strong free cash flow in a challenging market environment and plans to continue aggressively reducing costs through restructuring and productivity initiatives to align cost structure with demand, according to Galloway.

Jude said bumper-to-bumper hard parts business continued to grow in Canada, and LKQ plans to expand that business segment due to the fragmented “do-it-for-me” hard parts market across North America.

LKQ reported that its Q4 revenue was $3.3 billion, an increase of 2.7% over Q4 2024.

Total parts and services revenue increased 2.2% during the quarter, which included a 3.7% increase from foreign exchange rates year over year, a 1.7% decrease in parts and services organic revenue, and the net impact of acquisitions and divestitures.

Revenue for the full year of 2025 was $13.7 billion, a decrease of 1.3% over 2024.

Total parts and services revenue for the full year decreased 1.5%, which included a 2.7% decrease in parts and services organic revenue (2.3% decrease on a per day basis), a 1.7% increase from foreign exchange rates year over year, and the net impact of acquisitions and divestitures.

LKQ expects insurance premiums to continue to drop this year, in addition to some dropping by around 6% in 2025, Jude said. He said the expected result is that insurance will become more affordable, so consumers will use their coverage to repair their vehicles, and that will benefit LKQ.

Jude also highlighted some positive early signs of improving market conditions in North America this year.

“We’re seeing lower insurance premiums, rising used car prices, and major insurers suggesting claims could return to historical patterns by late 2026,” he said. “At the same time, as I’ve emphasized on our second quarter and 2025 call, we will not build a recovery into our base case until we see it clearly materialize in the marketplace… We are being cautious and conservative as we enter 2026.”

Throughout the year, Galloway told investors the company isn’t forecasting much improvement in repairable claims in North America.

“There’s a lot of good news that we’re seeing, but until we see it actually in our numbers, we’re not going to put it in our forecast or in our budget or guidance,” he said. “What we’ve got is similar to what we had in Q4, we’re assuming that kind of goes through the full year of 2026 with a little bit of improvement throughout the year. The back half of the year, we expect to be a little bit better than the first half of the year.”

As for overall earnings results, LKQ informed investors that EBITDA margins are expected to be slightly down this year compared to 2025 as tariff impacts are annualized. Organic parts and services revenue growth is expected to land between -0.5% and 1.5%. North America is expected to be slightly positive.

When asked about the impact of more electric vehicles on the road, Jude said LKQ has agreements with a few OEMs to receive their collision-damaged and totaled EVs.

“If you can think about dismantling some of these EVs, it’s very dangerous; touching a wrong terminal could cause fires and what have you,” he said. “A lot of the OEs, and some of the insurance companies, are really concerned about dismantling these vehicles, so we tend to get a lion’s share of those EVs just because of our quality, our overall service level, and just our coverage.”

Jude added that LKQ thinks it can capitalize on EVs leaving the repair market by providing parts, such as hoods, fenders, and doors, to collision shops or recycling some components.

“There’s a big push to ensure that the battery and some of the commodities that go into the battery production or the motors get left in the U.S.,” he said.

Images

Featured image: LKQ’s headquarters in Nashville, Tennessee. (Provided by LKQ)